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The performance of value and momentum investment portfolios: Recent experience in the major European markets

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Abstract

Value and momentum investing are two approaches to investing which have been increasingly utilised either overtly or covertly by fund managers. Consistent with their increasing popularity, a number of academic studies have found such strategies capable of outperforming traditional benchmarks. The majority of these studies have been focused on the US market and covered the 1980s and 1990s, during which time there was a consistent upward trend in stock prices. In this paper the authors examine a wide selection of value and momentum strategies applied to the major European markets over the period from 1990 to 2002. This period captures a large upward movement followed by a significant correction. The authors find strong evidence that certain implementations of value and momentum investing performed particularly well over this period across the European markets, with the outperformance from value being confined to the correction period, while that from momentum occurred during the run up during the 1990s.

Suggested Citation

  • Ron Bird & Jonathan Whitaker, 2003. "The performance of value and momentum investment portfolios: Recent experience in the major European markets," Published Paper Series 2003-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ppaper:2003-1
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    File URL: https://link.springer.com/article/10.1057/palgrave.jam.2240105
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    Cited by:

    1. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    2. Ron Bird & Lorenzo Casavecchia, 2007. "Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience," The European Journal of Finance, Taylor & Francis Journals, vol. 13(8), pages 769-793.
    3. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    4. Stéphanie Desrosiers & Jean-François L'Her & Jean-François Plante, 2007. "Importance of style diversification for equity country selection," Journal of Asset Management, Palgrave Macmillan, vol. 8(3), pages 188-199, September.
    5. Eero J. Pätäri & Ville Karell & Pasi Luukka, 2016. "Can size-, industry-, and leverage-adjustment of valuation ratios benefit the value investor?," International Journal of Business Innovation and Research, Inderscience Enterprises Ltd, vol. 11(1), pages 76-109.
    6. Galariotis, Emilios C., 2010. "What should we know about momentum investing? The case of the Australian Security Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 369-389, September.
    7. Eero J. Pätäri & Timo H. Leivo & J.V. Samuli Honkapuro, 2010. "Enhancement of value portfolio performance using data envelopment analysis," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 27(3), pages 223-246, August.
    8. Keith Anderson & Chris Brooks, 2006. "The Long-Term Price-Earnings Ratio," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1063-1086.
    9. Mattias Hamberg & Jiri Novak, 2010. "Accounting Conservatism and Transitory Earnings in Value and Growth Strategies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 518-537, June.
    10. Kartick Gupta & Stuart Locke & Frank Scrimgeour, 2013. "Profitability of momentum returns under alternative approaches," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 9(3), pages 219-246, June.
    11. Lars Kaiser, 2020. "ESG integration: value, growth and momentum," Journal of Asset Management, Palgrave Macmillan, vol. 21(1), pages 32-51, February.
    12. Eero J. Pätäri & Timo H. Leivo & Sheraz Ahmed, 2022. "Can the FSCORE add value to anomaly-based portfolios? A reality check in the German stock market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 321-367, September.
    13. Keith Anderson & Chris Brooks, 2006. "The Long‐Term Price‐Earnings Ratio," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1063-1086, September.
    14. Eero J. Pätäri & Timo H. Leivo & Janne Hulkkonen & J. V. Samuli Honkapuro, 2018. "Enhancement of value investing strategies based on financial statement variables: the German evidence," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 813-845, October.
    15. Faten Zoghlami, 2013. "Momentum effect in stocks’ returns between the rational and the behavioural financial theories: Proposition of the progressive rationality," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(1), pages 1-10, January.
    16. Salim Chahine, 2008. "Value versus growth stocks and earnings growth in style investing strategies in Euro-markets," Journal of Asset Management, Palgrave Macmillan, vol. 9(5), pages 347-358, December.
    17. Timo H. Leivo, 2012. "Combining value and momentum indicators in varying stock market conditions," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 11(4), pages 400-447, October.
    18. Emilios C. C Galariotis, 2010. "What should investors know about the stability of momentum investing and its riskiness? The case of the Australian Security Exchange," Post-Print hal-00917587, HAL.
    19. Timo H Leivo & Eero J Pätäri, 2011. "Enhancement of value portfolio performance using momentum and the long-short strategy: The Finnish evidence," Journal of Asset Management, Palgrave Macmillan, vol. 11(6), pages 401-416, February.
    20. Muhammad Kashif & Sanyah Saad & Imran Umer Chhapra & Farhan Ahmed, 2018. "An Empirical Evidence of Over Reaction Hypothesis on Karachi Stock Exchange (KSE)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(4), pages 449-465, April.
    21. Pätäri, Eero & Leivo, Timo & Honkapuro, Samuli, 2012. "Enhancement of equity portfolio performance using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 220(3), pages 786-797.
    22. Cormac O’ Keeffe & Liam A. Gallagher, 2017. "The winner-loser anomaly: recent evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 49(47), pages 4718-4728, October.
    23. Faten Zoghlami, 2013. "Attempt to resolve the momentum effect enigma: Proposition of investors’ progressive rationality," Journal of Asset Management, Palgrave Macmillan, vol. 14(4), pages 255-266, August.
    24. Faten Zoghlami, 2013. "Momentum effect in stocks’ returns between the rational and the behavioural financial theories: Proposition of the progressive rationality," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(1), pages 01-10, January.
    25. Keith Anderson & Chris Brooks, 2005. "The Long-Term P/E Radio," ICMA Centre Discussion Papers in Finance icma-dp2005-02, Henley Business School, University of Reading.

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